Financial Products & Associated Risk Management

Credit Analysis - Part 4


This tutorial looks at the importance of financial forecasting and the need for clear assumptions when forecasting, the role of stress testing, and the common pitfalls that analysts need to watch out for when building their forecasts. A business entity’s structure, business model, and the industry in which it operates affect the size and complexity of the entity and its financial statements. The tutorial looks at how analysts approach the financial statements of holding companies, banks, and insurance companies. We use a scenario to describe the most commonly employed techniques used by credit analysts when assessing the financial health of a corporate customer.


On completion of this tutorial, you will be able to:
- Recognise how forecasting and timing impact the value of financial statement analysis
- Identify the importance of having clear assumptions, robust revenue projections, and well-defined relationships that underlie forecasts
- Construct a forecast income statement, balance sheet, and statement of cash flows
- Recognise the importance of stress testing financial forecasts
- Identify how the size and complexity of businesses, business structures, and business models impact financial statements and credit analysis
- Recall how to approach the analysis of holding companies, and describe bank and insurance company balance sheet structures
- Recognise the importance of analysing both company and consolidated accounts for groups
- Identify how leases, pension liabilities, deferred taxes, and discontinued operations impact a company’s financial statements


Module 1: Credit Analysis - Forecasting
Topic 1: Importance of Financial Forecasting
Topic 2: Forecast Income Statements
Topic 3: Forecast Balance Sheet & Statement of Cash Flows
Topic 4: Stress Testing

Module 2: Credit Analysis - Other Factors
Topic 1: Business Size, Complexity, & Additional Influences
Topic 2: Financial Statements of Specialised Companies & Industries
Topic 3: Large Company Financials & Other Issues


Relevant Subject
Type 10 - Providing credit rating services
SFC:3.00, PWMA:3.00
Chinese Securities Association of Hong Kong (HKCSA): HK$1010
Staff of Corporate Member: HK$960
All Member: HK$960
Non-Member: HK$1440